ISA INTERNATIONALE INC.
2564 RICE STREET
ST. PAUL, MN 55113
SEC File No. 1-16423
June 24, 2011
U.S. Securities and Exchange Commission
Division of Corporation Finance
Washington, DC 20549
Attn: Mr. Andrew D. Mew
Accounting Branch Chief
Dear Mr. Mew:
We are responding to your letter dated June 7, 2011 concerning our
correspondence filed on May 25, 2011. This was a response to your second
letter dated April 27, 2011 and your original letter dated March 2, 2011
with comments and questions about our Form 10-K submission for our fiscal
year ended 09/30/2010. Our response will correspond to the points
referenced in your letter. We had previously requested on June 21, an
extension to June 27, 2011 in response to your letter dated June 7, 2011.
The Company will be submitting a revised Form 10-K/A for the period ended
September 30, 2010 within the next 30 days and Form 10-Q/A for the period
ended December 31, 2010 and Form 10-Q/A for the period ended March 31, 2011.
The Registrant, ISA International Inc., is referred to in this letter as the
"Company" or "ISAT".
Form 10-K for the Fiscal Year Ended September 30, 2010
Consolidated Financial Statement
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies
1(a) Nature of Business
1. We will properly file the Indemnification Agreement and Exhibit A with
our amended Form 10-K/A filing for the year ended September 30, 2010.
1(j) Financial Instruments
2. We reclassified our Finance Receivables from Level 3 to Level 2 fair
value hierarchy because the method used to value the assets consists of using
the readily observable inputs of the actual cost of the acquired receivables
adjusted by the actual amount of gross collections received on the portfolios
by the Company. In accordance with the use of lower-of-cost-or-market
accounting, the Company does a quarterly review of the receivables value
where it compares the carrying cost to the forecasted estimated collection
value. If the Estimated Future Collection Value (EFCV),less our estimated
collection cost is less than the actual finance receivables carrying value,
the Company would take a write down of the receivables value, referred to as
an impairment charge. This impairment charge would be based on readily
observable data which is a level 2 input. If we were to change our inventory
valuation method to using the interest method of revenue recognition under
FASB ASC 310 and then our Finance Receivables valuation would change from
Level 2 to Level 3 due to the unobservable inputs in using the interest
method.
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Item 9A. Controls and Procedures
3. Section 9A - Controls and Procedures has been changed to be in
compliance with Items 307 and 308 of Regulation S-K in our proposed revised
statement below to be included with our revised Form 10-K/A submission.
Item 9A. CONTROLS AND PROCEDURES
(a) Management's Conclusion Regarding the Effectiveness of Disclosure
Controls and Procedures
ISA International Inc., under the direction, supervision, and participation
of our Chief Executive Officer and Chief Financial Officer and effected by
management and other personnel, has conducted an evaluation as of the end of
the period covered by this report, of the effectiveness of the design and
operation of disclosure controls and procedures (as defined in Rules 240.13a-
15(e) and 240.15d-15(e) of the Securities Exchange Act of 1934).
Based on this evaluation done during March 2011, our Chief Executive Officer
and Chief Financial Officer concluded that as of September 30, 2010, the
Company's disclosure controls and procedures were not effective due to
material weaknesses in its disclosure controls over financial reporting as of
the end of the period covered by this annual report on Form 10-K/A.
(b) Management's Annual Report on Internal Control Over Financial Reporting
The management of ISA Internationale Inc. is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term
is defined in Exchange Act Rule 13a-15(f). Under the direction, supervision,
and participation of, our Chief Executive Officer and Chief Financial Officer
and effected by management and other personnel, our management and certifying
officers conducted an evaluation as of the end of the period covered by this
report, of the effectiveness of internal control over financial reporting
based on the framework in Internal-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO-
Framework).
Based on the results of this evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that as of September 30, 2010, our controls
were not effective.
Material weaknesses and errors were discovered in the reporting of collection
revenues and costs on our Company owned portfolios overstating income and
expense. Our required procedures to review accounting functions were
improperly managed. The procedures were in place but were not always adhered
to by management and accounting personnel.
As a result of these material weaknesses, the Company financial reports
contained in our original 10-K submission for the period ended September 30,
2010 contained errors overstating the reporting of Gross collections revenues
and Cost of Collections expense on our Company owned portfolios using the
cost recovery method. There were no errors in the reporting of our other
sources of revenue or General and Administrative Expenses. The net result
after correcting these errors produced a negative adjustment to our net
operating income of $12,423. Another correction was to record a legal
settlement expense accrued for $4,500 as of September 30, 2011. This amount
had been paid in the quarter ended December 31, 2011. This expense was
incorrectly reported on September 30, 2011, as a subsequent event.
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As a result of this reevaluation of controls and procedures completed during
the month of March, 2011, the Company has instituted changes to insure that
proper accounting standards are being met and followed by accounting
personnel and management and the Chief Executive Officer and CFO has
concluded that controls are effective as of the filing date of this Form 10-
K/A report.
This Report does not include an attestation report of the Company's
registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission permitting the Company to provide only the
management report in this report.
Form 10-Q, for the Fiscal Quarter Ended March 31, 2011
Item 4. CONTROLS AND PROCEDURES
Management's Conclusion Regarding the effectiveness of Disclosure Controls
and Procedures
4. Management believes that disclosure controls and procedures are
effective as of March 31, 2011, due to the fact that all material weaknesses
were discovered and corrected prior to filing the 10-Q for the quester ended
March 31, 2011. As a result of internal review and audit of our disclosure
procedures and internal controls that were conducted by management, we have
concluded that March 31, 2011 and forward, the disclosure control procedures
are effective.
5. We understand your request and confirm that the following verbage will
be removed in future filings: "on a timely basis in order to comply with the
Company's disclusre obligations under the Exchange Act and the rules and
regulations promulgated there under."
Item 6. Exhibits and Reports on Form 8-K, page 24
(a) Exhibits 31 and 32
6. We will update the dating in the exhibits as previously filed had an
old date. The revised Form 10-Q/A will have a current date when filed within
the next 30 days.
Acknowledgements:
The registrant hereby acknowledges that:
1. the Company is responsible for the adequacy and accuracy of the disclosure
in our filings;
2. staff comments or changes to disclosure reported to the SEC in response to
staff comments do not foreclose the SEC from taking any action with respect
to the filing; and
3. the Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities laws
of the United States.
We are attempting to fully comply with the reporting requirements of the SEC
and respectfully ask for your agreement with our conclusions in this
correspondence. Please contact me at 651-489-6941 or by fax at 651-484-9870
if you have additional comments or questions.
Sincerely,
/s/Bernard L. Brodkorb
President, CEO, and CFO
ISA Internationale Inc.